Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Héroux-Devtek Fiscal 2023 First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then number one on your telephone keypad. If you would like to withdraw your question, please press star then number two. Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. We refer you to slide 2 of the accompanying presentation available on the company's website for the complete forward-looking statement. I would like to remind you that this conference call is being recorded today, Friday, August 5th, 2022 at 11:00 A.M. Eastern Time. I would like to turn the conference over to Monsieur Martin Brassard, President and Chief Executive Officer, and Monsieur Stéphane Arsenault, Vice President and Chief Financial Officer of Héroux-Devtek. Please go ahead. Thank you very much, Sylvie. Good morning, everyone, and welcome to our First Quarter Earnings Conference Call for Fiscal 2023. I invite you to follow along by referring to the financial statements and the MD&A and press release, which can be found in the investors section of our website. Our financial results for the first quarter fell short of our objectives as we generated less sales than planned. However, our manufacturing activities create value as demonstrated by the CAD 17 million increase of our inventory level when compared to March 31st. As a matter of fact, our revenue profile is shifting to the right. Before going into further detail about our results, I'd like to spend a few minutes on the industry macro environment. Passenger traffic is continuing to recover from the pandemic, and 2019 levels should be within reach in 2023 or 2024. Growth in China's traffic and global COVID-19 restrictions remain key drivers of full recovery. Boeing recently published their annual commercial market outlook study for new airplanes demand and still predict that more than 41,000 aircraft will be produced over the next 20 years. This represents an average of 2,000 airplanes per year and is mainly driven by the cost demand, fleet renewal, and the expected long-term increase in passenger traffic. More than 25% of this 20-year demand is already in the order book of Airbus and Boeing. Demand for business jet aircraft has remained robust throughout the pandemic, and all major manufacturers plan to increase their production rates as a result. In addition to optimistic demand forecast for civil aerospace market segment, the current geopolitical environment continues to drive global defense budget higher. Most NATO countries reaffirm their commitment to invest at least 2% of their GDP in defense, as demonstrated in the recent announcement of Canadian, Finnish, and German governments to buy F-35 fighter jets, as well as the announcement of the German government to buy 60 CH-47 helicopters. Closer to us, the US defense budget is expected to increase to $813 billion from the $773 billion announced in March of this year. As you can see, demand is not an issue for the aerospace industry. The challenge we all face is to produce consistently and steadily due to the near-term challenge caused by supply chain disruption, inflation, and labor constraints. The COVID-19 pandemic continued to contribute to higher absenteeism, both in our facility and in our supply chain. In the first quarter alone, compared to the same period last year, we have observed 4 times more positive cases. The safety of our employees is important to us, and the protocols are still in place in our facilities to avoid community transmission. This obviously caused some distraction to our production system. Workforce constraints were and are an issue for us and our industry. Skilled labor is necessary to produce airplanes, and we are facing difficulty filling vacancies in many sectors of the industry. However, at Héroux-Devtek, we have had some success mitigating this issue as we have 95% of the required resources in place to execute our plan. Nevertheless, we are experiencing higher turnover than a historical average. In addition, Russia's invasion of Ukraine has led to limited availability of certain raw materials, adding more pressure on the industry and the industry production system. We expect these challenging conditions to continue in the near term, and as a result, we expect higher volatility in our delivery from quarter to quarter. We are fully committed to improving our throughput and are working relentlessly to combat these challenges. We are leaving no stone unturned, taking nothing for granted in our efforts to improve our production system, and we are working closely with our suppliers, supporting them in their own challenges. At this time, I would like to turn it to Stéphane for a detailed review of our first quarter results. Thank you, Martin, and good morning, everyone. As usual, please be aware that we will be referring to certain non-IFRS measures during the call, including adjusted EBITDA, adjusted net income and adjusted EPS. All non-IFRS measures are defined and reconciled in the MD&A issued earlier today. Consolidated sales for a quarter decreased 9.6% to CAD 114.1 million compared to CAD 126.2 million last year. This decrease is the result of the impact of the current operating environment on the corporation's ability to generate throughput. That lower throughput, however, was partially offset by the ramp-up of delivery for the F-18 program with Boeing, as well as higher delivery for the Embraer Praetor. Gross profit decreased to CAD 12.5 million or 11% of sales from CAD 21.6 million or 17.1% of sales last year. The decrease is attributable to lower throughput and higher production inefficiency resulting from the production system disruption in the quarter. Operating income decreased to CAD 2.6 million or 2.3% of sales from CAD 10.8 million or 8.6% of sales last year. Lower operating income reflect the decrease in gross profit as well as the marginal decline in SG&A expenses. Adjusted EBITDA stood at CAD 11.4 million in Q1 or 10% of sales, compared with CAD 20 million or 15.9% of sales a year ago. Net income for the first quarter of fiscal 2023 stood at CAD 1 million or 3 cents per diluted share from CAD 6.7 million or 19 cents per diluted share in the corresponding period last year. Cash flows related to operating activity reached CAD 12 million in the first quarter, down from CAD 19.1 million last year, with the decrease reflecting lower net income in the quarter. Given the current supply chain environment, we expect to carry a higher level of inventory during the coming quarters, which should help stabilize throughput. Our financial position remains strong at the end of Q1, with net debt at CAD 150 million, down from CAD 152.1 million at March 31, 2022. Back to you, Martin. Thank you, Stéphane. While our deliveries for the quarter were lower than what we would have liked, our order book, which builds over a long sales cycle, is unimpacted and we are encouraged by the growing demand for our product and services. This morning, we announced a significant agreement with Boeing for the repair and overhaul of the F-18 Super Hornet landing gear and tires and brakes. The first phase of the contract covers 40 aircraft and is expected to be followed by options for the sustainment of the complete US Navy fleet. This new contract is a good example of how we are maximizing revenues from a recent program award, and it testifies to the strength of our business relationship with long-standing partners. We believe that transparent communication and collaboration are the foundations of such relationships. To that effect, we had many constructive meetings with our customers and industry partners in Farnborough. Finally, while our immediate focus is on delivering to our customers, our financial position is strong and allow us not only to cope with the current challenges, but also to consider growth opportunities, including accretive acquisitions. Sylvie, we are now ready to answer questions. Thank you. If you would like to ask a question, simply press the star then number one on your telephone keypad. If you would like to withdraw from the question queue, please press star then number two. Again, if you have a question, please press star then one on your telephone keypad. Your first question will be from Konark Gupta at Scotia Capital. Please go ahead. Thanks and good morning, everyone. Good morning. Good morning. I wanted to understand the absenteeism and the supply chain issue a little bit better. Thanks for sharing some color in terms of, you know, how much resource you have right now versus what you need. Can you provide a couple of things? One, maybe, you know, in terms of your active working headcount during the quarter versus, you know, recent times and then, I mean, how much absenteeism you saw in the quarter? What are sort of your mitigation efforts to kind of reduce impact on production because of absenteeism? Because as you said, like, I think absenteeism is not in your control and like it may or may not happen and the magnitude may change, but what can you do to mitigate that? To mitigate that, inventory is our friend as we speak. You know, CAD 17 million increase in the inventory, that's a mitigation to get the top line and to be able to deliver. We have many assemblies that are missing, you know, a few components to be able to deliver. In terms of absenteeism, you can imagine that we had 50 cases last year, and we had 200 cases for the same period this year. When you multiply that, you know, by the number of 5 to 10 days, you know, of absenteeism, that represents significant absenteeism also. disruption because we have, you know, when you have an employee that is not there in the line, you know, that creates some holes in the production system also. At the end, you know, it's well, you have something to add, Stéphane, or? Yeah. It's not only us, right? I think Martin alluded in his communication as well is that not only us we're going through that, but the supply chain as well. This is we're having some issue getting some key component and where there was some specific also issue at certain facility for the supply chain. Right, Martin? I don't know if you wanna explain a bit on- Yeah. Mainly, you know, where we've been hit the most, Konark and all the other analysts, you know, that are on the line also, is there are three facilities that fell short by 48% of the objectives, you know, 45%. Stéphane and I are looking at this very closely. We're doing detailed reviews, and we leave no rock unturned there to improve these throughput. Basically, you know, these three facilities explain most of the shortfall out of the 15 facilities, most of the shortfall that we have compared to our objectives. That's good color. That seems like a pretty high number for sure in terms of you know how these facilities are contributing and impacting. Is there any particular geography in your facilities where you're seeing these issues? Like, is it more like Europe or U.S. or Canada? Three countries. Three-country facilities, three different countries. Okay. It's everywhere essentially. Okay. Makes sense. Yeah. Okay. It's a tough environment, Konark. When I was in Farnborough, you know, nothing strange that you would expect is everybody's living the same situation throughout the industry. You know, we were in Farnborough, and everybody's talking about, you know, how difficult it is, you know, right now to deliver product and get their production system the way it used to, right? We've said it, you know, many times over the last quarters that there's some disruption, you know. The sales out there is mainly pushed to the right. The revenue profile approached to the right. The challenge here is to execute and to have a steady production system, and everybody's saying the same thing. Right. That makes sense. Thanks. My second question, before I turn it over, is on the Boeing contract. Congratulations on that. Seems like this is something that you were waiting for for some time. It's a first F-18 MRO contract, I believe. Want to understand the 40 aircraft that you have in the first phase, how long you have for the ramp up of that contract, if you have any ramp there? How, like, how long does the contract run for the entire life of the 600 aircraft? First delivery will be in fiscal 2023, 2024, right? Next fiscal year. We have three years to deliver the 40 aircraft. Right now we're in the long lead item provision, right? Okay. Is it a steady sort of run rate for the next 500 or six years? It depends. Again, to add to the uncertainty here, it's gonna depend on how many the customer will send to us, right? Right now the Navy has built a rotable pool. That's what we understand, right? The Navy has built a rotable pool. Now they need to send, you know, through Boeing with the PBL contract that Boeing has, is to send these units to us. Would you have to rebid or bid again on the options, or they come to you by default? No. Once you have developed all that, you know, and once you have all the options, you know, and we satisfy, you know, we should be renewed should the US. Okay. Should the U.S. Navy renew the contract with Boeing, right? Right. Okay, perfect. Thanks for the answers. That's it for me. Thank you, Konark Gupta. Thank you. Next question will be from Benoit Poirier at Desjardins Capital Markets. Hello, Benoit. Hi. Good morning, Martin. Good morning, Stéphane. Could you provide maybe more color about your ability to recover in the coming quarter? If you add up CAD 18 million buildup in inventory to revenue, would it be fair to say that revenue would be closer to normal expectation under normal circumstances? What about your ability to recover in the back half? How How should we be looking at the sales? We haven't dropped the ball on our objective, Benoit. The team and all the sites are fully committed to meet the objectives. However, second quarter, you know, we're getting into the holiday period, you know, in Europe and here in Canada, so that's what it is. We should see. We haven't dropped the ball to our objective. It's a tough environment to work in. We are, you know, in terms of you saw the increase in the inventory. So like I said to Konark, inventory is a good friend to us right now in this situation, in this environment. And to be sitting on the inventory, more inventory is a good thing right now because it gives us ability to deliver throughput. As a matter of example, in one of the sites, you know, we had 100 actuators to deliver, you know, with fair pricing. Because we were missing one part, we did not deliver one. Now we're resuming deliveries in July, right? We should be meeting the target, you know, should we have stabilized that. Another subject, you know, we have in another site, it's three part numbers that we could do. We could increase, you know, from a revenue of CAD 2 million to CAD 5 million. If we can get the three part numbers right, we can get to the increase by CAD 3 million on throughput. You know, the rest of the components are there. It's a tough environment. I'm not saying three units. It's three part number, right? Just to be careful and to be more. I don't want to minimize, you know, and I don't want to put, you know, like pink glasses there. We need to be realistic, and we need to understand the challenge of the environment. We understand the challenge of the environment, and we are adjusting resources accordingly, you know, to deliver the throughput. That's great color, Martin. What about your ability to pass through inflation costs and raw material? I'm just wondering how it could impact your ability to sustain kind of a EBITDA margin in the range of 15%-16% that you've been able to maintain over the last years. Yeah. Benoit, good question. Our concern right now is to generate the throughput. We believe that once we generate the throughput to the normal level, right, we're gonna get to more closer to historical levels. Now the same answer to the inflation, right? We have contracts. We have different type of contracts, where the life of the program contract, we have escalation clause. You know, those clause have been executed. You know, those clause have been honored by our customers. So we do have other contracts where, you know, the inflation on the raw material is passed for one-to-one with a certain percentage. So the inflation of the raw material is covered. The value add is, we're taking the risk of those contracts. You know, they have an expiry date from 2 to 3, 4 years, right? Then we have the spare business that sits on a PO-to-PO basis. Those, it's easy to adjust every time that we get a sale, right? Okay. That's perfect. You just came back from the Farnborough Airshow. We saw Boeing outperforming Airbus with close to $16.3 billion in announcements. Embraer has been successful with the E2. We saw increased activity in defense. I was just curious to see if you could provide some highlights and anything positive that stood out for you guys. Well, of course, it gives us an opportunity to meet all of our customers, our industry partners. People are very satisfied with our performance. There is no customer that is unhappy with the level of our services and delivery, so which is a very good thing. We're all in the same situation. We're all sharing. That's why I was saying, you know, every time that we were getting in a meeting with procurement people, I was telling them, you know, how hard it is, you know, in this environment. Everybody answers that this is. They've never seen such a thing, right? The demand is there. People are optimistic as to the future. It's the near-term issues that we need to fix altogether to be able to stabilize our respective production system. If you hear what the big leaders conference call and earnings release, you know, there's microchip shortages. There are raw material shortages, castings in some major systems. But in Farnborough, very good meeting. Very good relationship with customers. Everybody was happy. The mid-term future is pretty optimistic and shared by everybody. Okay. Last one for me. Just on the 777X, we saw the recent cancellation from Qatar Airways on the A350s. The CEO also stated that Boeing may beat its 2025 delivery target on the 777X. I was just curious to see if you see also this as a possibility and any color on the 777X for this year and next year, what we might expect in terms of production rate. Nothing new, Benoit. Nothing new. The backlog is there. The entry into service is a critical thing for Boeing to be able to sell more 777X. Like we had said, you know, and like Boeing said, it's 2-3 airplanes a month, you know, combined. They switch 777X to cargo airplanes, you know, delivering to the cargo market is pretty good for them. I believe that they have more than 75% of the market share there. I believe that's what I heard from their call, if I'm not mistaken, you can verify that. For us, you know, it's the critical base is 777X and EIS, entry into service. That's great. Thank you very much for the time. Thank you, Benoit. Next question will be from Cameron Doerksen at National Bank. Please go ahead. Good morning, Cameron. Yeah, thanks. Good morning. Good morning. Just maybe a couple of questions, just on the, you know, on the production and throughput issues. I just sort of want to make sure I understand. You know, if I think of the margin compression in the first quarter, can we really put that mostly down to the lower throughput? You know, is that by far the big significant contributor to the lower EBITDA margins? Absolutely. When compared to last year, it's the most important impact. If you recall, last year, we still had CEWS for CAD 2.5 million. The inefficiencies have not disappeared. They have just increased as explained by Martin. But most of the impact comes from the lower throughput. Okay. If I think about, I guess, the trends going forward, am I right to assume that this was probably the worst quarter, and that things have maybe gotten a little bit better in your fiscal Q2? We're certainly aiming for that. That was a bad quarter for us. We certainly want to stabilize the production system. Okay. There was just, I guess, a comment in your MD&A just regarding some of your, I guess, your own supply chain and maybe some concerns about, you know, the financial health of maybe some of these companies that supply to you. Can you maybe expand on that a little bit? Are you seeing any of your own suppliers that are maybe facing some financial challenges? If that's the case, you know, what can you do about that? Absolutely. As a true example, you know, we have a risk matrix of our suppliers, so we knew those suppliers. Sometimes what you do, you're starting preparing a second source, right? You see. To go to somebody else, you know, it takes a while. It takes nine months, you know, before you get six to nine, and maybe a year to get to full production ramp up, you know. When you make a decision to develop another source, it's a lengthy process. You have to do a first article. You have to develop the tooling, the method, and then they get the material. I estimate the nine months. A matter of fact, you know, and so we had that plan in place. You know, the supplier shorts us by two months or one week, by one month, two months. It's, you know, we got the letter saying that they stop operating at the end of August. Those are types of examples that are happening also. You cannot pinpoint, you know, to one factor, you know, in the current environment. We've said it all along, you know, since the past nine months or six months. We're saying, you know, like Stéphane was saying, you know, when we were doing our tours. I feel that there's you know, you have to place a PO before you put a date, and then the buyer was sending the PO on that date, you know. If they were late, they were late by one week. Now you need to follow up. You have to have boots on the ground. You have to go to your supplier and visit the supplier to get those products in. That's the environment that we're operating in. We have measures, right? Well, we have performed well, you know, for the past nine months. Now it's we're disappointed with this result, you know, but we're fully committed to recover, you know, those years lost for. Right. Okay. No, that's helpful. I'll pass the line. Thanks very much. Thank you. Thank you, Cameron. Once again, as a reminder, if you do have a question, please press star followed by one on a touchtone phone. Your next question will be from Tim James at TD Securities. Good morning, Tim. Good morning, everyone. Good morning. Thanks for taking my call. Just a couple of housekeeping questions, I guess, first. Just for you to give us a bit of a sense for the backlog at the end of the first quarter. Very stable compared to the previous year end. Okay. You've mentioned- Stable without putting the recent announcement. Right. Okay. That's- As of the end of the first fiscal quarter. Yeah. At the end of Q1. Yeah. Okay. You mentioned about absenteeism, and you were kind of comparing it year-over-year with first quarter fiscal 2022, I believe, and you mentioned it's gone up four times. What about relative to Q4 of fiscal 2022? Like, sequentially, what sort of trend have you seen? If we compare to Q4, we were mostly hit, if you recall, in the month of November and January, right? That was where we had, we doubled our cases from 200 to 400 cases. In just two and a half months, and now we have over 800 cases as we speak. It's higher than Q4. Hopefully it will stabilize, right, with the waves. I don't know which wave we are in. It depends on the country, but it has been some sort of a nightmare. The customers too, you know, we had inspectors, you know, source inspection, you know, to inspect from the customer, and they catch COVID. They delayed their inspection for three weeks, so it's delaying delivery also. Right. Forgive me if you already gave an indication of this and I missed it. It's entirely possible. Can you give us a sense for how much revenue or the difference in reported revenue in the quarter versus what you had kind of planned? Basically, I'm just trying to get a sense for sort of the shortfall relative to what you expected due to these reasons that you've cited in your MD&A. Okay. Normally, we don't give guidance, right? Yeah. because it's you, if you look at the increase in the inventory, kind of close to the number. Okay, that's great. Yeah, my last question here, you know, back in the third quarter of fiscal 2022, I believe it was, there was some delays, again, that I think some of which were common reasons. I think at the time, you talked about maybe about 10% impact on revenue, and then sort of making that up over the coming quarters. And have you been able to recover some of those revenues that were delayed sort of in fiscal 2022 and but now they're being more than offset by delays in further revenues or, you know, those sort of deliveries that I mean, have you been, I guess, making some inroads on recovering some of those revenues from last year? Just more, there are more delays on top of that. Yeah. Some of it in, if you recall, in Q4, we had a very strong Q4, right? We recovered partially, what we had not delivered in Q3. We have a lot of work in front of us. Okay, those are all the questions I had. Thank you very much. Thank you. Thank you. Thank you. At this time, Martin Brassard, we have no further questions. Please proceed. Yes. Thank you very much, everyone, for having joined us at our AGM and earnings call this morning. Thank you as well for your interest and ongoing support to Héroux-Devtek, and have a great day. Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines. Have a good weekend.